When a credit card is accepted for payment in a transaction, the physical card may or may not be present. In a “Card Present” (CP) transaction such as a transaction at a point-of-sale terminal, the physical card is typically read by a physical card reader (e.g., allowing either the magnetic stripe or the chip on the payment card to be read). When such transactions are subsequently processed, the transaction is registered as “Card Present” as an indication that the transaction is less likely to be fraudulent because of the presence of the card.
In a “Card Not Present” (CNP) transaction, payment is typically processed based on the card payment information alone (e.g., name, credit card number, expiry date, and/or a card verification value (CVV)), without verification of the presence of the physical card via a swipe or entry into a payment terminal. For example, such transactions may include a telephone transaction (where the card payment information is provided orally over the phone) or an electronic commerce transaction (where the card payment information may be manually entered onto a website hosted on a merchant server). When these transactions are subsequently processed, the transactions are registered as “Card Not Present” as an indication that the transaction has a higher likelihood of being fraudulent (i.e., recognizing that it is likely easier for payment card information to be stolen than it is to make a copy of the physical card).
To account for the higher risk of fraud with CNP transactions, payment card processing services typically charge merchants higher fees for processing CNP transactions than for processing CP transactions.